ASIC looking closely at Banksia collapse

Small investors have been caught up in the collapse of the Victorian-based Banksia Securities financial group.

ABC TV News

The corporate regulator has set up a special taskforce to investigate Banksia's $660 million failure and to find out whether small non-bank lenders need tougher regulation.

Debentures offered by companies like Banksia Securities are fixed-term investment products that promise to deliver better returns than banks, but they do carry higher levels of risk.

If the task force finds evidence of misconduct and poor disclosure, the Australian Securities and Investments Commission is likely to urge Treasury to overhaul the regulation of the non-bank lending sector.

ASIC's chairman Greg Medcraft says investors need to be informed of the difference between a debenture and a deposit with a bank or other authorised deposit taking institution.

"Investors really need to be very clear that these institutions, you know, are not covered by the deposit guarantee, they are not regulated by APRA, that's the most important thing," he said.

"They may look like a bank and act like a bank, but they are not a bank and they are not regulated prudentially like a bank. Nor do they have the same protections as a bank."

The Banksia collapse has the hallmarks of some investment failures that we last saw in the lead-up to the global financial crisis, some of the brands like Fincorp, Westpoint, Australian Capital Reserve.

Mr Medcraft says he has had concerns about the non-bank investment sector for quite a while.

"This sector has been trouble for us for some time. It's one that we've actually signalled publicly for some time that we are concerned by it," he said.

"At the moment what is available to us is disclosure and conduct. We've done a lot in the disclosure area. We've done a lot in the surveillance area.

"Now we will actually have a closer look. We've established an internal task force to actually look at Banksia and the sector more broadly and we may make policy recommendations to government in relation to the sector."

Mr Medcraft is also concerned that some of the providers such as Banksia had very close community relationships and people felt their money was going to be safe because they knew the people they were dealing with.

"Companies like Banksia in regional communities had a great deal of trust, and what we are concerned about absolutely is what we can do to try and make sure that investors can be confident and informed when they invest their money," he added.

ASIC declined to comment on whether other companies issuing debentures may be lacking funds to cover potential bad loans, however Mr Medcraft says investors should be vigilant and examine the financial position of any company before making an investment.

"I don't want to speculate about other debenture companies. What I actually will reiterate is that investors need to request a copy of their prospectus and look closely at their financials before they make any investment," he said.

"They need to have a level of scepticism when they make an investment in companies like this, or like any company."

Mr Medcraft says a surprising number of investors still do not seem to appreciate that higher returns on financial products generally equate to higher risks of losing money.

"We are troubled that investors are not looking at the disclosure that's available and that's why, you know, perhaps the level of regulatory intensity needs to be increased in relation to this sector," he concluded.